The Budget

[dre]

Housing prices are completely distorted by government policy, which seeks to artificially inflate the prices of homes as much as possible for the benefit of current owners while disenfranchising younger generations. It is nowhere close to any kind of free market.

Its not so much that they want existing homeowners to benefit. In fact they will be the ones most hurt by these policies eventually. They are trying to prop up the rest of the economy and keep consumers spending.

What I'd give for 20% mortgage rates.

Youd give up your ability to finance pretty much anything and quite possibly your job. You are pining for a recession or a depression there... careful what you wish for.

Edited April 1, 2016 by dre

[Bonam]

Its not so much that they want existing homeowners to benefit. In fact they will be the ones most hurt by these policies eventually. They are trying to prop up the rest of the economy and keep consumers spending.

Current homeowners comprise most of the people who vote. They will destroy any politician who changed policies in a way that was detrimental to their home prices.

[dre]

Current homeowners comprise most of the people who vote. They will destroy any politician who changed policies in a way that was detrimental to their home prices.

So would everyone else. When housing prices correct you are going to see a long deep recession that hurts everyone - homeowners included. Remember all that inflated home equity is whats keeping the rest of our economy afloat.

The government will definitely be replaced when the chickens come home to roost. Thats why they keep kicking the can down the road with further easing.

[msj]

And they started paying more for them in 1986, but the amount they were putting in has never matched what they're going to get out because they've still got 25 years of underpayments behind them.

No, the reason the CPP will have money is due to the drastically increased payments, which, granted, they did pay in the latter part of their careers. But you (and your employers) will be paying that your entire working life, and the amount collected needs to be higher than it othwerwise would be to make up for the relatively free ride the boomers got from 1966 till into the 1990s.

Most people hit their peak earnings years in their 40's and 50's.

Boomers hit those ages from 1986 to 2014.

So they have been paying CPP rates closer to the 4.95% (9.9% combined) when it stopped rising in 2003 than the measly 1.80% in 1986 when CPP rates started escalating.

In the meantime, I get to use TFSA's and reduce my future income tax bill considerably.

But that's not fair since baby boomers are not going to get to use this for as long as I get to.

And, oh nooooossss, millennials get even more time to benefit from TFSA's.

Life ain't fair so get used to it.

[msj]

The government will definitely be replaced when the chickens come home to roost. Thats why they keep kicking the can down the road with further easing.

But why would the BOC raise interest rates?

What is the case for doing that?

Yes, regulation is the bigger issue with people buying homes at 10 times income which should not be happening (but somehow is happening - thanks to "gifts" from parents and "cash back" mortgages).

[dre]

But why would the BOC raise interest rates?

What is the case for doing that?

To reduce mal-investment and the forming of asset bubbles and to encourage productivity. Also to put the BOC back into a position where it has guns to fire if there are unforseen problems. Its also a means of controlling peoples spend VS save disposition.

Also some of the factors that have caused low global interest rates will reverse soon. One of the things that have allowed us to have low interest and savings rates is high savings rates in other countries like China. Rates started to come down in the 90's once all those savings made their way into global financial systems, and that is already starting to reverse. At some point we will need to raise rates to hit inflation targets.

Also when interest rates and bond yields are too low for too long, investors divest themselves of bonds and start investing in more speculative high risk investments... like subprime mortgages. When investment shifts towards more speculative activity the chances of financial crisis' increases.

Edited April 1, 2016 by dre

[BC_chick]

But why would the BOC raise interest rates?

What is the case for doing that?

Eventually something will have to give to cool the housing market and having to choose between higher interest rates and restricting foreign-ownership, I think the government is more likely to go with the former.

ETA, of course I would prefer the latter, but I'm stating what I think our leadership will do.

Edited April 1, 2016 by BC_chick

[Wilber]

People who think they are entitled to the benefits of housing property that is worth 10x what they paid for it while all future generations are priced out forever deserve a swift kick in the ass.

So what's your solution, legislation that you can't sell your home for more than you paid for it plus the cost of any improvements you have put into it?

No doubt about it, the housing market is tight in many places. In the lower mainland and southern Vancouver Island there are simply more people wanting to live here than there is housing or land to build it on. Sounds like Toronto is much the same. Even out here in Abbotsford, most of the new construction I see is town homes and condos. Raising interest rates won't change that much and countries can't operate in a vacuum when it comes to setting interest rates, they have to reflect what is going on in the rest of the world. When a country has to set rates much higher than world norms, it is usually because the world has no confidence in its currency and is demanding a premium to buy it. We are finally catching up with the other high rent parts of the world.

Also, most of the foreign money pouring into the BC real estate market is not borrowed, it is cash sales and interest rates won't change that one iota. As far as controls on foreign ownership goes, I don't know how much good that would do, Australia has foreign ownership restrictions and Sydney is even more expensive than Vancouver, because it is a great city and a fantastic place to live, not because of low interest rates.

[BC_chick]

There are lots of nice places to live in this world where prices aren't increasing by an upward of 25% annually. This is not sustainable.

[Wilber]

There are lots of nice places to live in this world where prices aren't increasing by an upward of 25% annually. This is not sustainable.

No but if anyone thinks prices are going to go back to 20th century levels, they are dreaming and the market ain't going to tank unless the rest of the world tanks with it. Vancouver prices have been steadily climbing to the level of other major centers since Expo 86 put the place on the world map. It is not the same market as 30 years ago and never will be again.

[dre]

So what's your solution, legislation that you can't sell your home for more than you paid for it plus the cost of any improvements you have put into it?

Deflating the housing bubble with government policy would be really really easy. Just raise the overnight rate, and stop guaranteeing so many low down payment mortgages.

The problem isn't that they cant do it, its that they don't want to. They are worried about the impact of such policy on the rest of the services sector.

[Wilber]

Deflating the housing bubble with government policy would be really really easy. Just raise the overnight rate, and stop guaranteeing so many low down payment mortgages.

The problem isn't that they cant do it, its that they don't want to. They are worried about the impact of such policy on the rest of the services sector.

You don't want to deflate anything, you want to put the brakes on what is already there. Destroying people's equity and making them lose their homes because they can't afford to renew mortgages is not a solution. Someone else losing their home so you can get a deal is not acceptable. By raising the overnight rate, you are putting the brakes on everything, not just housing. Higher down payments is something that could be done but it won't stop cash sales or reduce the number of people who want to live here.

[dre]

No but if anyone thinks prices are going to go back to 20th century levels, they are dreaming and the market ain't going to tank unless the rest of the world tanks with it.

That's wishful thinking.

Vancouver prices have been steadily climbing to the level of other major centers since Expo 86 put the place on the world map. It is not the same market as 30 years ago and never will be again.

This is just not true. Prices exploded after 2000. Before then we saw an orderly annual increase in values.

[Wilber]

From a purely personal point of view, I would love to see higher rates because I am at a time in my life where I am investor, not a borrower but substantially higher rates could devastate people like my kids who have mortgages and business loans.

[Wilber]

That's wishful thinking.

No, it is reality. Look at London where you pay millions for a leasehold and have done for years. Places like Vancouver have entered a new universe and they aren't going back.

This is just not true. Prices exploded after 2000. Before then we saw an orderly annual increase in values.

I'm not saying there won't be corrections, look at 80-81 and it wasn't pretty, but if you think you will ever be able to buy a home in Vancouver for a 2010 price you are dreaming. The only way that will happen is if there is another great depression and then housing prices will be the least of your worries.

[BC_chick]

Sorry, I misread your post, Wilber.

Edited April 1, 2016 by BC_chick

[Argus]

There are lots of nice places to live in this world where prices aren't increasing by an upward of 25% annually. This is not sustainable.

It is sustainable as long as Chinese money comes flooding into TO and BC.

[Argus]

From a purely personal point of view, I would love to see higher rates because I am at a time in my life where I am investor, not a borrower but substantially higher rates could devastate people like my kids who have mortgages and business loans.

There are a lot of people now who would not be able to afford the mortgage if rates returned to normal numbers, like 5%.

[BC_chick]

It is sustainable as long as Chinese money comes flooding into TO and BC.

I agree. As I said earlier, I think restricting foreign ownership will cool the market much better than an increase in interest-rates but I have very little faith in our government (same as the previous) to act in our best interest in that respect.

Edited April 2, 2016 by BC_chick

[Wilber]

I agree. As I said earlier, I think restricting foreign ownership will cool the market much better than an increase in interest-rates but I have very little faith in our government (same as the previous) to act in our best interest in that respect.

No doubt there will be an end to the double digit increases and probably even a pull back at some time but Vancouver real estate prices are now "world class" and that won't change.

[BC_chick]

No doubt there will be an end to the double digit increases and probably even a pull back at some time but Vancouver real estate prices are now "world class" and that won't change.

Vancouver does not have the same economy as New York, London, or Paris. It doesn't even compare to Toronto or Sydney. I don't know how feasible this will be to be honest.

We like to say we're world class but we're not.

[Argus]

Vancouver does not have the same economy as New York, London, or Paris. It doesn't even compare to Toronto or Sydney. I don't know how feasible this will be to be honest.

We like to say we're world class but we're not.

Cost is a factor of availability vs demand. As far as I can determine from casual reading, a large part of the demand is Chinese money seeking a safe investment outlet outside China.

If the Chinese government ever decides to really clamp down hard on that (which they can do) I think you'd see a huge drop in demand for higher end condos and homes, which would soon begin to plunge in 'value'. That would have a domino affect on other lower priced residences.

[BC_chick]

Cost is a factor of availability vs demand. As far as I can determine from casual reading, a large part of the demand is Chinese money seeking a safe investment outlet outside China.

If the Chinese government ever decides to really clamp down hard on that (which they can do) I think you'd see a huge drop in demand for higher end condos and homes, which would soon begin to plunge in 'value'. That would have a domino affect on other lower priced residences.

Agreed again. Vancouver is much more Chinese bought than world class.

[Wilber]

Agreed again. Vancouver is much more Chinese bought than world class.

I guess the Chinese disagree with that. They can buy real estate in just about any western country.

[Argus]

I guess the Chinese disagree with that. They can buy real estate in just about any western country.

Not any. There are a lot stricter rules about absentee purchases in some countries. But Vancouver and TO are hardly the only cities the Chinese are putting money into. New York and London simply aren't as heavily influenced because they're much larger cities.